Q1 2025 Intact Financial Corp Earnings Call
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Speaker Change: Good morning ladies and gentlemen, and welcome to the Intact Financial Corporation, Q1 2025 results conference call. At this time all lines are in militant only mode.
Speaker Change: Following the presentation, we will conduct a question and answer session. And if at any time during this call, you require immediate assistance, please press star zero for the operator. Also know that this call is being recorded on May 7th, 2025.
Geoff Kwan: And now I would like to turn the conference over to Geoff Kwan, Chief Investor Relations Officer. Please go ahead.
Geoff Kwan: Thank you, Sylvie. Hello, everyone, and thank you for joining the call to discuss our first quarter financial results. A link to the live webcast and materials for this call have been posted on our website at IntactFC.com
Geoff Kwan: Under the Investors tab. Before we start, please refer to slide two for a disclaimer regarding the use of forward-looking statements which form part of this morning's remarks. And slide three for a note on the use of non-GAAP financial measures and other terms used in this presentation. Thank you very much.
Speaker Change: To discuss the results today, I have with me, our CEO , Charles Brindamour, our CFO , Henry Anderson, Patrick Barbeau, our Chief Operating Officer, and Guillaume Lamy, as Senior Vice President, Personal Lions.
Charles Brindamour: We will begin with our pair remarks followed by Q and A, and with that I will turn the call over to Charles.
Thanks, Geoff.
Good morning everyone, and thanks for joining us.
Charles Brindamour: The first quarter of this year, reinforced our position of strength.
Charles Brindamour: We reported a 10% increase in net operating income per share.
Achieving $4.1 with strong contributions across the business.
Charles Brindamour: Our book value per share grew 4% from last quarter and 13%
Year-over-year
Charles Brindamour: These results underscore the resilience of our platform and our ability to succeed both operationally and financially, even in an environment of market volatility and economic uncertainty.
Top-line growth was 3% in the quarter.
This was attributable to continued momentum in first lines.
through both rates and solid increase in units.
Charles Brindamour: and Commercial Line's growth was muted due to specific profitability actions we're taking in the US and in the UK in particular.
Charles Brindamour: and we continue to see pressure in large accounts across all jurisdictions.
Charles Brindamour: That being said, rates remain in the mid-single digits in most lines, and while we maintain a focused approach on earnings growth, we're confident in our ability to achieve strong
Charles Brindamour: We have a really good action plan to ensure that we seize on all available opportunities.
Charles Brindamour: We expect growth to improve for the remainder of the year as remediation actions taper off and our actions kick in.
Charles Brindamour: Our combined ratio was solid at 91%, despite 2.5 points of higher catastrophe losses
Charles Brindamour: This highlights strong underlying results and healthy favorable prior year development across our businesses.
Charles Brindamour: Bell, let me provide some color on each of our lines of business starting with Canada.
Thank you. Thank you. Thank you.
Charles Brindamour: So personal premiums were up 11% this quarter. This was a function of both rate actions.
and a 2% increase in units. [inaudible]
Charles Brindamour: As profitability remains challenging for the industry in particular in Alberta,
Charles Brindamour: We expect hard-market conditions to persist over the next 12 months.
Charles Brindamour: Our combined ratio of 97.5 included a four-point impact from severe winter conditions which was higher than seasonal expectations for a first quarter.
Charles Brindamour: Overall, the combined ratio will remain in line with our full year sub 95 guidance.
Thank you.
Charles Brindamour: And personal property premiums were up 9% driven by red actions and unit growth. We continue to expect hard-market conditions to persist given the impact of severe weather activity over the last couple of years.
Charles Brindamour: and despite challenging winter conditions, we delivered an 88.9% combined ratio in the quarter.
Charles Brindamour: Again in tenet on commercial lines, premium growth was 1% reflecting mid-single digit rates in most lines.
Charles Brindamour: There was a three-point drag primarily from business mix as well as continued competition in
Charles Brindamour: Given the constructive market conditions, we expect industry growth in the mid-single digit range over the next world much.
The combined ratio continued to be very strong at 81.2% [inaudible]
Shubha Khan
Moving now to our UKI business.
This quarter saw a 4% decrease in premium.
Charles Brindamour: The remediation actions in the direct line portfolio impacted our top line by approximately three points. Welcome petition and large accounts space continue.
Charles Brindamour: Given the current market conditions, we expect in this free premium growth in the mid-single digit over the next.
Charles Brindamour: 12 months. And as mentioned earlier, we expect that the remedial action on direct line will taper for us in the coming months.
Charles Brindamour: The underlying performance of the business and the U.K. is generally in line with expectations.
Charles Brindamour: The combined ratio of 97-6 intudes, elevated tats, and large losses in the quarter.
Charles Brindamour: Overall, the UKNI business remains well positioned to evolve, the combined ratio towards 90% in 2026, really in line with the trajectory we started to see in 24th.
Charles Brindamour: In the US premiums decreased 3%, which included a five-point impact from the non-renewal of one larger cow.
Charles Brindamour: In aggregate, Rate Momentum was in the mid-single digit across the majority of lines.
Charles Brindamour: Our remediation worked on a few verticals will continue to taper in 25, which will reduce the top line graph, drag.
Charles Brindamour: From an industry perspective, we expect premium growth to continue to be in the mid to high single
Combined ratio in the US was strong at 86.8%.
Charles Brindamour: The portfolio is positioned to be less exposed to weather-related cat risks, as was evidenced by the losses related to the LA wildfires which were 10 million in the quarter.
Charles Brindamour: So going forward, we expect to continue delivering a low 90s or even better performance.
Charles Brindamour: Let me now highlight the progress on some of our key strategic initiatives.
Charles Brindamour: First, building scale and distribution to further expand our leadership position in Canada is an important pillar of our game plan.
Charles Brindamour: Broker Link in the quarter established itself as a coast-to-coast player by making its first acquisition in British Columbia
Charles Brindamour: With over 200 locations nationwide, Broker Link is well in its way to reaching its near-term objective of 5 billion of premiums by the end of 2025.
Speaker Change: As part of our journey to become the leading commercial lines insurance in the UK and I, we announce that RSA, NIG and Farmwell will rebrand as Intact Insurance by the end of this year.
Charles Brindamour: This is the natural next step in the evolution of our UK night business.
Charles Brindamour: We're thrilled to associate the Intact brand with the excellent progress our teams in the UK and I have achieved.
Thank you very much. Thank you.
Charles Brindamour: As part of our pricing sophisticated efforts, we implemented new, prepared-to-re-advanced models in the US during the quarter.
Charles Brindamour: Roughly a third of the U.S. Premium now, Leverage Deez Advanced Models. [inaudible]
Charles Brindamour: These efforts support GSL's ambition of sustaining a sub-90s combined ratio.
Charles Brindamour: Then to be one of the most respected companies, we need to be a leader in building resilient communities.
Charles Brindamour: That means reducing our carbon footprint and doubling down all the climate adaptation.
Charles Brindamour: And please report that our emissions are down 23% today on our way to 50% down by 2030.
We also double our commitment to municipal climate resiliency grants.
Charles Brindamour: You can find a lot more in our social impact report.
Thank you.
Charles Brindamour: As a business, we anticipate and plan for uncertainty and our consistent out performance stands as a testament to this.
Charles Brindamour: We stress test many scenarios, ranging from tariffs to broader geopolitical tension, and we manage our business accordingly.
Charles Brindamour: From a financial and operational standpoint, not only can we weather the big storms,
Charles Brindamour: But we're also really well positioned to play offense in this environment.
Charles Brindamour: We're proud of our track record over the past decade and our well-positioned to achieve a net operating income per share growth of 10% annually over time and to outperform the industry are we by at least 500 basis points every year.
Charles Brindamour: With that, I'll turn the call referred to our new CFO , Ken Anderson. Thanks, Charles, and good morning everyone. We start the year on a strong footing with net operating income per share of $4.01 in the first quarter, an increase of 10% from last year.
Ken Anderson: Each of our operating performance drivers, underwriting, investment, and distribution income were up year over year. This drove an operating ROE of 16.5% over the last 12 months, despite a few points of drag from higher than expected catastrophe losses.
Ken Anderson: And our balance sheet remains strong and resilient, with 3.1 billion of total capital margin at the end of the quarter.
Let me provide some color on First Quarter underwriting results.
Ken Anderson: The overall underlying current accident-year loss ratio improved to 60.3% year-over-year. This reflects strong performance in commercial lines in Canada and the US.
Ken Anderson: In personal lines, the ratio remains solid, despite severe winter conditions in the quarter, and in the UK and I, year-over-year improvements in our DLG portfolio were more than an offsash by increased large loss activity in our specialty business.
Shubha Khan, Charles Brindamour, Louis Marcotte, Geoff Kwan
Ken Anderson: Moving to catastrophes, we reported 244 million of losses in the first quarter. Higher than expected of cuts in the UK and I were mainly due to two named storms.
Ken Anderson: And the cap ratio in the US was driven by a few large commercial fires. We continue to expect approximately 1.2 billion of annual catastrophe losses with approximately one-third anticipations in each of Q2 and Q3.
Ken Anderson: Favorable prior year development was strong at 6.9%, reflecting continued to prudent reserving across all segments of the business.
Ken Anderson: This strength was particularly evident in commercial lines which represented two-thirds of the total in the quarter Also, nearly one point was from favourable development on prior year catastrophe losses [inaudible]
Ken Anderson: Q1 tends to be the quarter that has more favorable PYD as all claims development is from the previous years.
Ken Anderson: We've mentioned before that we reserve cautiously and the combination of current accidents here and PYD is the best way to assess the evolution of the underlying performance of the business. On that measure, the year-over-year improvement overall was 1.5 points.
Ken Anderson: The Consolidated Expense Ratio of 33.5% improved by one point from last year and was in line with our full year expectations to operate in the 33 to 34% range.
Ken Anderson: On a sequential basis, the 17 million increase in investment income was due to non-recurring distributions of 9 million, and in part, favorable currency movements.
Ken Anderson: Based on current markets, we still expect investment income of approximately 1.6 billion for the full year.
Ken Anderson: Distribution income increased by 17% to $170 million, driven by organic growth, higher margins, and our ongoing broker consolidation activities.
Ken Anderson: We expect distribution income growth of approximately 10% for the rest of the year, with some fluctuations from quarter to quarter.
Ken Anderson: As Charles mentioned, we announced the rebranding of RSA to Intact Insurance, a major milestone for our UK and I operations.
Ken Anderson: We will report the accelerated depreciation of the RSA and NIG brand and tangibles over the next 12 months in integration costs overall we expect to see a reduction in full year restructuring and integration costs compared to last year.
Moving to our balance sheets.
Ken Anderson: We continue to maintain a very strong financial position. We ended the first quarter with book value for shared just over $96, a 4% quarter over quarter, and 13% year over year.
Ken Anderson: Capital Margin reached $3.1 billion at the end of the quarter and are adjusted debt to total capital of 19.1% continues to be lower than our targets and 30 basis points lower than the end of 2024 .
Ken Anderson: Our performance continued to demonstrate the strength and resilience of our platform and we're energized by the opportunities ahead. Our balance sheet stability means we're ready to deal with any impacts from increased economic uncertainty while also being ready to capitalize on growth opportunities as they arise.
Ken Anderson: At our upcoming investor day on May 21st, we look forward to delving further into our game plan to grow organically, to strengthen our margins, and to effectively deploy capital.
Geoff Kwan: These are the key pillars of our objective to deliver 10% noise growth annually over time, while sustaining at least 500 basis points of annual ROE outperformance in the years ahead. With that, I'll give it back to Geoff.
Geoff Kwan: Thank you, Ken. In order to give everyone a chance to participate in the Q&A, we would ask that you limit yourself to two questions for person. You can certainly recue for follow-ups and we'll do our best to accommodate if there's time at the end. So Sylvie, we're ready to take questions now.
Speaker Change: Thank you. Ladies and gentlemen, if you would like to ask a question, please press star followed by one on your touch on phone. You will hear a prompt acknowledging your request.
Geoff Kwan: And if you would like to withdraw from the question cue, please press star followed by two. And if you're on the speakerphone, please lift the handset first before pressing any keys. Please go ahead and press star one now if you have any questions.
Speaker Change: First we will hear from Tom MacKinnon at BMO Capital. Please go ahead.
Tom McKinnon: Yeah, thanks very much. Just a question with respect to the favorable prior year development. I think you've talked about two to four percent of net premium runs as being longer term guidance. I think you've reiterated that you've probably run towards the high end of that.
Tom McKinnon: If we look at the Q3 and Q4 of last year, you were probably running in the high fives, and now...
Tom McKinnon: 6.9% in the first quarter, albeit there's some seasonality as you pointed out with respect to commercial lines. I mean, do you continue to guide towards the high end of that two to four? And what's driving that? Thanks.
Great question Tom.
Thank you very much. Thank you.
Charles Brindamour: Ken, why don't you maybe unpack the favorable development, which is really strong, and then I'll take the guidance. Yeah, sure.
Ken Anderson: Yeah, so you're right, Tom. Q1 was favourable 6.9%. You know, a couple of elements, I guess firstly, as you said, Q1 tends to be more favourable than other quarters. All the development is coming from prior years.
Ken Anderson: We did have about one point of development from the significant prior year catglosses in 2023 and 2024. I would say in Q1
Speaker Change: Worknoting, though, that in Canada commercial, the five-year average on PYD in Q1 is 9%, so whilst elevated not extremely so.
and many more. Thank you. Thank you.
Speaker Change: Underlying Performance. Yeah, and I think, Tom, your question on guidance, 2-4%
You know, we're, we're...
Challenging ourselves as to whether…
Speaker Change: That guidance shouldn't be updated, and we'll talk about that at the Investor Day, which I'm sure you'll attend in a few weeks from now. I think, you know, post COVID, we took a cautious stance in terms of
Speaker Change: The guidance itself so that you guys had a good long-term perspective and I have to see that.
Speaker Change: There's strength across the operation, probably a bit beyond what we anticipated and will challenge ourselves on the guidance. I don't expect any meaningful or real substantial change there, but your observation, I think it's dead on.
Speaker Change: Okay, and a quick follow-up, just on which I've called corporate and other expenses. Lawing kind of jumps around quite a bit, if I look over the...
Speaker Change: First, second and third quarter of last year was 28, then 60, then 39, and then...
Speaker Change: 49, and now it's 27 in this quarter. Is there seasonality to this thing? I mean, this is just more of a modeling question. What would make that jump around? Should we look at the same pattern from last year? I don't know, I don't know. I don't know. I don't know. I don't know.
Speaker Change: Yeah, I wouldn't point to anything unusual. Tom, it can be a bit of lumpiness from accounting adjustments, but it's not overall a significant number. You may have some quarter to quarter volatility in it.
Speaker Change: Thank you. Next question will we from Paul Holden at CIBC? Please go ahead.
Paul Holden: Some large, favorable development associated with the 2019 to 2022 years. So wondering if you're still benefiting from those?
Speaker Change: Accident Years, or not. And if you are, you know, remind us on why there is abnormally high faithful development associated with those years.
Yeah, I think...
Paul, just keep in mind.
Speaker Change: that the average duration of reserves is between two and three years depending.
Speaker Change: on the jurisdiction in which you're looking at across the platform, we tend to have a short-tailed book.
even
Speaker Change: in the US, and I would say that those early years would have much less of an impact now given the duration of the portfolio.
Shubha Khan: Shubha Khan Executive, Shubha Khan, Charles Brindamour, Louis Marcotte, Geoff Kwan
Okay.
Shubha Khan: That makes sense, just had to check. And then Charles, you made a number of comments regarding sort of the normalization or tailing off of remediation actions across various commercial
Shubha Khan: Maybe you can give us a better sense of when that premium growth should gravitate more towards the mid-single digit.
Shubha Khan: Growth Range, quickly on, maybe each of Canada, UK and US, I imagine the timings are a little bit different across each, but some of the times of timing on that would be helpful, thank you.
High level, Paul, I expect that.
You'll see a buildup.
Between now and your end.
Shubha Khan: And that is a function, you know, one big drag is the direct line integration.
which is a drag of close to four points. [inaudible]
and that can provide a bit of color there.
and then in the U.S.
You have a couple of coins.
that come from remedial action in three verticals, specifically.
Entertainment, Environment
Shubha Khan: and some and financial services. And that should taper off as well in the second half of this year.
Speaker Change: Ken, I don't know if you want to add a bit of color there. Well, on the direct line specifically, you know, we've said it before, but just worked reiterating, we picked up about 100 million more premium in that 100 million pounds more premium in that acquisition than we anticipated.
and...
Speaker Change: We initially booked it as a call to share. Now the business is coming into our platform and the remediation activity has been going on for a few quarters and continues in Q1 and into Q2. And that's why, as Charles said,
Speaker Change: Towards the second half of the year, you should start to see some of that, you know, remediation tape are often terms of growth. So, um,
Speaker Change: That's what's relevant to the drag that we're seeing in Q4, Q1 and likely in this in Q2. A good in Q2 indeed, and I think Paul, you know.
Dion DeRumidiation . .
Speaker Change: What else is building up? And I would say that from a growth point of view, I would zoom in on five areas where we've doubled down.
Speaker Change: in the recent months given some of the pressure to make sure that the growth trajectory takes advantage of what we have in the toolbox one.
Thank you.
Speaker Change: The speed at which we're deploying sophisticated pricing tools in particular in the US and in the UK means that where performance
Speaker Change: is well beyond our targets. We can reinvest some margin in the right areas.
Second, broker relationships and distribution.
Speaker Change: Big area of upside. We're adding new brokers in the UK and in the US or going deeper in those broker relationships. In fact, we're seeing the number of submissions. Take up across the board including. We're adding.
Speaker Change: here in Canada, and we're also investing in distribution. Third,
Speaker Change: Through technology and operational improvement, we're quoting more of those submissions than we did so last year. That's in part why the new business generation is actually quite strong if you look at Canada, for instance. [inaudible]
Speaker Change: Where the issue as I've mentioned is mix. That's not remediation, it's just where we have the greatest success.
Speaker Change: Fort, we're upping our game from a service proposition to broker across all jurisdictions to really create a distance.
with other insurers, and that includes deploying technology in the field. And fifth.
Speaker Change: We're expanding our vertical set and leveraging our global network in particular in global specialty lines, and you know, when you stack up that game plan,
Speaker Change: with a market that is constructive in which we have a lot of room to grow. I think, you know, we should have seen the second half of this year an improvement in the trajectory of the commercial lines growth.
Speaker Change: Understand. Let's clear. Thank you. Thanks for your time. Thank you.
Speaker Change: Next question will be from John Aiken at Jeffries. Please go ahead.
Thank you.
John Aiken: Good morning. It was an excellent explanation, Charles. I just wanted to carry on to commercial side in each of the three various geographies you could talk about.
John Aiken: mid-single-digit rate growth across platform, and basically your guidance for the industry seems reasonably positive, particularly in the U.S. But I wanted to ask you about the level of confidence you have in terms of that guidance.
John Aiken: and I guess more importantly, what are you hearing from your commercial clients about their outlook for the economy and basically the instability that we're seeing out there?
Yeah.
I think the environment I would say overall is constructive. [inaudible]
John Aiken: It's at the larger end of commercial line that you're seeing a fair bit of pressure that is market pressure per se, and we see that in all jurisdictions otherwise you know fairly constructed.
Um.
You're a question release about- [inaudible]
Economic Impact, and what we see from our customers.
and fair to see that in the past. [inaudible]
John Aiken: Couple of months in the first quarter we have seen some changes I don't think they're a major issue in terms of top line at this stage but in some segments
John Aiken: I'll give you an example, multi-family dwelling, that market is down meaningfully.
John Aiken: in the US, for instance. In transportation lines of business, we're seeing
John Aiken: A bit of a slowdown as well. And so we're starting to see at the economic level some changes
John Aiken: You know, Moringrain will report on that in the next quarter so far, we're seeing some signs but nothing major. Now keep in mind when you look at our business in relationship with the economy. [inaudible]
John Aiken: Our retentions, I can personalize you, you need to be insured. And so, top line and first lines is not really sensitive.
to economic changes, and retention is very strong.
John Aiken: Same thing in commercial lines, really, especially in the SME and mid-market space. The economic pressure you see at the higher end of commercial lines, but then people need to ensure themselves.
and Commercial Automobile, you'll see sometimes. [inaudible]
John Aiken: A bit more variation, because it's easier to put a fleet.
John Aiken: on the blood, so to speak, and reduce the amount of insurance you give, but otherwise people keep ensuring themselves and retention remain very strong across all our markets in the low 90s, upper 80s depending on where you look.
Thanks, Charles. I appreciate the caller.
Speaker Change: Thank you. Next question would be from James Bloyn at National Bank Financial. Please go ahead.
and many more. Thank you. Thank you.
Morning, James, you good morning. Good morning.
I guess if we start MacRool.
and we look at the uncertainty.
Speaker Change: That exists in the economy at the moment and markets to a certain extent.
You know, my observation would be that prudential regulators. [inaudible]
Aron, the front foot. [inaudible]
Speaker Change: Quite frankly, I'm impressed by the engagement, like people want to understand where the risks are coming from and and how to protect the system.
Speaker Change: It's really not a concern on the contrary. I think that prudential regulators are very proactive and more dynamic than what we've seen historically. That's the first
Speaker Change: Observation. It's true here in Canada and I think it's true in other jurisdictions, US, UK, where we operate as well. Second, one layer down, good news with the intact business is that
Paul Insurance is not regulated.
It doesn't need to be because it's super competitive. [inaudible]
Speaker Change: Commercial lines is not regulated. It doesn't need to be because it is super competitive. First a lot of a bill as you know is regulated and maybe we can share a perspective there. And I would put first a lot of a bill in two buckets.
Speaker Change: Alberta, which is a problem and has been a problem for some time.
Speaker Change: and then the rest of Canada, because we don't do personal automobile outside Canada.
Speaker Change: And Alex Guillaume, who deals with regulators or interacts with regulators on an ongoing basis to share his perspective about the country and maybe say a thing or two about Alberta.
Speaker Change: Thanks, Charles. So, yeah, I'd say broadly speaking, the regulatory environment and personal auto regulators are really moving towards protecting consumers and fair treatment of consumers, which is very aligned with our way of operating.
Speaker Change: I think from a rate regulation perspective, this is even becoming more and more flexible in some market. So I think the trend overall there is positive.
Speaker Change: If I focus maybe quickly on Alberta, so as we have alluded to in previous earnings call, there is core pressure in the Alberta market.
Speaker Change: I think industry profitability is deteriorating and we've seen recently some competitors showing increased signs of capacity issue above and beyond what we've seen last year.
Speaker Change: It's clear that the current situation is not viable and while the recent increase in rate cap relief some pressure, they're still pressure building up in the industry.
Speaker Change: So we believe it's very important for the government to allow the industry to get back to rate the adequacy on both new business and renewals before the reform by eliminating the existing rate cap in place.
Speaker Change: Otherwise, capacity will keep that they're rating, which is not a good outcome for anyone, consumers, government or insurance.
Speaker Change: On the reform itself, I think we're fully supporting reform is addressing the right issues from a fundamental perspective, and certainly a major step in the right direction, but we think there's still actions that need to be done before we get to that reform. Yeah, I think
James D. We want to grow in Persaud automobile?
Speaker Change: The industry is losing money, not just in Alberta, in aggregate across Canada, and I think regulators understand that and in many jurisdictions they're focused on the root costs of costs. So I think overall it's a constructive environment. Thank you very much.
I think Home Insurance is the other area. Yeah.
Speaker Change: where we're spending time with government officials to make sure that the focus on the root cause of the cost pressure in home insurance, you know, they understand and act upon it. And what is that?
Speaker Change: Well, the root cause of the cost pressure is the changes in weather patterns.
Speaker Change: And it becomes an issue when you build in the wrong place.
When you build with the wrong...
Standards, when you don't invest in infrastructure, infrastructure,
Speaker Change: And these are the areas we engage with cities, provinces, and the federal government. And I think there's a general recognition that the governments on those three levers need to do more. And now it's not just
Speaker Change: Intact or the industry who says that, which we've been saying for 10 years, but I think citizens are actually putting pressure on governments to do that. And so constructive dialogue there. So back on auto, I would say
I don't see a major risk, but Alberta…
Speaker Change: Even though the cap is higher and you have a reform in the pipeline for 2027, we're a bit worried
Speaker Change: for the market about the trajectory over the next two years. That's why we're working very closely with the government of Alberta to make sure that they have options and solution if the pressure was building before the date of the reforms themselves.
Shubha Khan, Charles Brindamour, Louis Marcotte, Geoff Kwan
Thank you.
Speaker Change: Great, and then going back to your prepared remarks, you mentioned that.
Speaker Change: You were well positioned to take a more aggressive stance in this in this current environment, just one of you can elaborate on on perhaps what you meant by that more aggressive posture and I'm not using your exact words there but [inaudible]
Speaker Change: I was kind of the tone that I took away from that last comment from you [inaudible]
Speaker Change: Yes, aggressive is not part of our lexicon, but being able to play offense.
Speaker Change: in a tough environment is certainly part of Armutus operandi. So I'll ask maybe Ken to share a perspective on
Ken Anderson: How we've stress tested the organization and why we think not only defensively we're in a strong position, but why we think we can play offense, can't yeah, so
Speaker Change: Jaeme, you know, we've stress tested a range of scenarios in the current...
Speaker Change: Climax and very well positioned to navigate, I would say a wide range of economic outcomes. We've mentioned the 3.1 billion of capital margin that the capital at close to 19% at the end of the quarter.
Also point out, the investment portfolio is very well diversified.
Speaker Change: Common equities are about 10% of the portfolio, over 80% of our debt securities are rated A or better, and the currency exposure to US and GBP also provides a hedge against any Canadian dollar weakening.
So overall, our business is very resilient and...
Speaker Change: From the modeling we've done, even in quite severe downside economic scenarios, like...
Speaker Change: A prolonged trade war. You know, we're very much in a position to play offense and capture growth or opportunities. And I think that's what...
Speaker Change: Charles was referring to. And I would go further and just say, you know, in extreme Taylorist scenarios that go beyond economic impacts.
Speaker Change: Very well-positioned defensively but equally in a strong position to play offensive.
Speaker Change: and excess capital. Very strong at the end of the quarter. And I would say, you know, building up as we move, as we move forward. Yeah, so clearly James our thought process here. Here.
Speaker Change: is to seek opportunities as there is uncertainty building up in the system.
Thank you for joining us. Thank you.
Thank you.
Speaker Change: Thank you. Next question will be from Doug Young at Desjardins. Please go ahead.
Good morning. Maybe a two-part question on the UK operation.
Speaker Change: You know, one, you know, expenses were elevated this quarter, but they seem to jump around a little bit. So I don't know if there's anything abnormal in the expenses this quarter, if this is kind of a new runway or. [inaudible]
Speaker Change: But the expense and expense ratio. And then you talked about higher large losses in the UK and I specialty lines business. Now is this related to DLG or RSA? Maybe you can flesh that out a little bit.
Speaker Change: I'll take the first part, the second part first, Doug, and then come back to expenses, you know.
Speaker Change: 97.6 combined ratio in the quarter two elements to point out the elevated cat losses three points from those storms.
Speaker Change: But then, yes, two points, I would say, of elevated large losses. They're in the London market, the specialty lines side of the business, so not related.
Speaker Change: to the direct line operations. And just, you know, again, large losses can be a bit lumpy. And, you know, we had an elevated quarter. And as I say, isolated in the...
Speaker Change: The specialty line side, side of the UK and I business. That, as I said, brings the run race to the 92-93 range, which is, you know, where we would expect to be right now.
then in terms of the expense ratio. So,
Speaker Change: Improvement versus last year, but in the UK and I, the 37.5%, you know, I would say it was in line with our expectations, but it is about 1.8 points higher year over year. I'd say there's three elements to that firstly. Let's see.
Speaker Change: I would say secondly, we have some costs related to the personal lines exits where systems are not fully decommissioned and I would say lastly there's a bit of top line pressure. Thank you very much.
Over from a top line point of view. [inaudible]
If we're to look forward...
Speaker Change: We would expect the expense ratio in that 37% zone as we move forward in the midterm. And I would say all of this, as I said, in line with expectations and baked into our view that we should be evolving the UK and I business towards that 90% expense ratio. Come on. Let's go to the next generation.
Sorry, Combined Ratio, by the end of 26.
Thank you. Thank you.
Okay, thank you, and then secondly, [inaudible]
Speaker Change: I mean, you've talked a lot about increased competition in the large cap or large commercial market. It's in Canada, it's now in the US, not in the UK. It's hoping you could delve into a little bit what's driving this is.
Speaker Change: And is this starting to creep into the mid cap for SME business and, you know, it's no, why not? It's just where I'm going is it feels like more capital is going after the commercial businesses and whether it's external capital or whatnot and, you know,
Speaker Change: Could this lead to a bit of a plateau in the market cycle and growth over the mid-term here? So that's where I'm going at this.
Thank you. Bye.
Yep.
Speaker Change: Doug, I'll ask Patrick to share his perspective and then I'll provide a bit of color as well.
Speaker Change: Doug, if I look at the lines of business in particular,
Speaker Change: Where there's been softer lines, it's clearly in larger accounts, so if I look in Canada, you'll think about...
Speaker Change: The larger account is starting to see some pressure also in what we call them in market, and then in specialty property that we call large property schedules of big buildings is where we see more competition in the US.
Speaker Change: It is some of the larger accounts as well but some specific lines like we talked about Fin Pro or DNO, we know.
Speaker Change: Cyber, as well as specialty property, and the UK, it's really more in the specialty lines that we see more pressure on on rates. So overall,
Doug, it's a continuation of the large commercial lines.
Speaker Change: Customers from what we've been talking about last year, the difference, I would say is...
Speaker Change: We're seeing competition pick up in large property schedule as well more so than three, four months ago, but still at the large end of commercial lines customers.
Speaker Change: Then your question is, you know, can this come downward? And I guess if you look at our experience over, you know, many years, and you followed our company for many years, you know that the SME and Mid-Market Space.
Speaker Change: is not as volatile to speak as the large commercial line space. So there's pressure at the top end of mid market, but I would observe that retention are pretty strong across the board.
Dosing Ratials,
Down a bit.
Speaker Change: in a world where rates are pretty healthy, but this translates [inaudible]
Speaker Change: For us, in particular, in the Canadian context, into a mixed shift. In other words...
Speaker Change: Our success is greater with smaller customers and smaller mid-market which is a tree point.
Speaker Change: Headwind, but not really a headwind to the bottom line on the contrary.
I would say and this is a pattern we've seen.
Speaker Change: Historically, over decades. So I'm not really concerned to see the sort of competitive pressure at the top end, my great downward, right down to the SME account.
Thank you.
Appreciate the color. Thank you.
John Aiken, John Aiken, John
Speaker Change: Thank you. Next question will be from Mario Mendonca at TD Securities. Please go ahead.
Good morning.
Speaker Change: Charles and Ken in response to James' question about playing offense, I think, can you give us a good explanation of why?
Speaker Change: Intact is in the position to play offense but I thought what you were going to address is what does playing offense mean to Intact? Like can you talk about what actions would constitute Intact playing offense? [inaudible]
Yeah.
Speaker Change: You know, just to put things in perspective, the capital generation of the organization is really strong. There's the north of three billion dollar buffer. You look at the operating are we sixteen five. You have north of two points of excess cat. Okay, so that gives you a sense of capital generation. You know, that's a lot of capital generation.
What does it mean in practice?
First.
Speaker Change: It means that we're on the front foot from a growth point of view and we're doubling down on
Speaker Change: Investing in the service we provide to brokers. In other words, we're not playing defense in terms of the investments we're making.
Speaker Change: Second, it means double down on the investments we're making in technology.
and accelerating the road maps that we have.
Speaker Change: Third, and maybe more importantly when it comes to actual capital deployment, because the first two things not so much capital but rather using our resources effectively, it means...
Acquisition
Speaker Change: And so, what that means in practice for us, Mario, is that we would love to deploy capital in the Canadian marketplace, in the US marketplace, both from a manufacturing and from a distribution point of view.
Um...
Speaker Change: Despite the fact that you hear, you know, there's a lot of uncertainty, people are on the sideline, that's not the mindset we're in, and we would be prepared to deploy, you know, meaningful capital to consolidate our positions.
Speaker Change: The UK is performing well. We're really happy with the performance that the team is generating out there. We're in the middle of integrating the direct line acquisition.
Speaker Change: And I'd be reluctant to add one big boulder to what these guys have to do, but I have to say, Mario, deal with that.
I'm...
Quite interested to grow our footprint
Speaker Change: in the commercial line space in the UK. It's a great market. It's bigger than Canada. Lots of similarities.
Speaker Change: and where we find opportunities because of the uncertainty right now, we're ready to go for it.
Speaker Change: Okay, so different to have a question. The USMCA, apparently not apparently what I've been reading is that auto parts that are compliant with USMCA will be exempt from tariffs.
Speaker Change: And when I read that, I immediately thought, I guess this is good news. This is not something you should intact or other PNC providers have to worry about. How do you interpret that information? Is that an ambiguously positive or is there a wrinkle there? [inaudible]
Thank you.
It's positive. I'll let Patrick share his perspective.
Speaker Change: You know, we've given you a bit of a quantification last quarter about the impact of the North American trade war. Now, if we look at the overall impact today of...
Speaker Change: All the things that are on the table, what are in effect or not? Just-
Speaker Change: to help you frame what it is. And then we'll talk a bit about the indirect impact as well. But so, Patrick, why don't you share your perspective? First of all, you're right. You know, this USMCA element on parts means that there's very little tariffs right now applied on parts. [inaudible]
Coming into Canada.
Speaker Change: Last quarter, we mentioned that in Auto in aggregate, 13% of our Lascas could be exposed to the Paris that included the parts.
Speaker Change: where there's no impact on that. But since there was additional announcements more globally on tariffs, we've made the same analysis on all the whole portfolio of IFC and to give you an idea.
Speaker Change: IFC globally for $1 of claims costs. It's about $0.7 that could be exposed to tariffs. This includes and imports from the U.S. to Canada.
Speaker Change: from the US to the UK, but also imports in the US from any countries.
Speaker Change: Arbor, the current tariffs applied to a very small portion of these imports and the impact on our combined ratio is very negligible to be precise. The current tariffs announced or implemented.
is only about 0.05 percent.
Speaker Change: Off Combined Ratio, or five basis points of Combined Ratio, what is already in there? So if we take the tariffs...
that have been announced or are in effect. Thank you.
Speaker Change: And you apply that to the 7% we're talking about five basis points if we do nothing.
Speaker Change: So that's good news, I would say I think the thing that we need to keep in mind is that there are tariffs on steel and aluminum and so you need to ask yourself
Speaker Change: You know, within the raw material that goes into those parts that are not tariffed
Speaker Change: How much pressure can there be in the system and I think? [inaudible]
Speaker Change: We've done a bit of work on that, Patrick. Yeah, we've made quite a few scenarios. These indirect impacts are a bit harder to predict. It could also have.
Speaker Change: Some effect as an example on market values and the use car market for some models, if you know the demand was shifting from brand new cars to these use cars we've made a few quite a few scenarios actually and overall we don't see even if we see significant
Charles Brindamour: Indirect Impact, we don't see an impact on the total combined ratio of more than half a point and to Charles mentioned earlier.
Charles Brindamour: That's before an immediate action that we could take on rates, reselection, supply chain, etc. So overall, Mario, I'd say good news.
Charles Brindamour: One needs to keep an eye on the indirect impacts, but we feel pretty good about where we are now, and that contributes to us being on the front foot back to your first question.
Thank you.
Speaker Change: Yes, thanks. I want to come back to this discussion on around PYD.
Charles Brindamour: At what point do you say maybe you're being too conservative in underwriting such that you're turning down otherwise profit a little business? Or is it there's the answer that there's just so much uncertainty right now that you're comfortable running well above the two to four percent range? [inaudible]
at the moment, like just some thoughts on that.
We're...
You know always making sure that we optimize. [inaudible]
between
Elasticity in the market.
Shubha Khan, Charles Brindamour, Louis Marcotte, Geoff Kwan
Speaker Change: You know, how above our target for a sub-return, we might be operate [inaudible]
Speaker Change: And you take the risks into account. We're on the front foot. It's unclear to me.
Speaker Change: It's not clear to me that we're being overly cautious in the environment in which we operate what would be my perspective. I don't know if any of my colleagues.
I have a bit of a bit of color . . .
Speaker Change: I just reiterate the point around looking at current accident gear and PYD together gives...
Speaker Change: Probably the better reflection, and that's how we think about it when we're pricing. Yes, I think it's a great point, and you know retention pretty strong across the board.
New Business Generation, it's pretty strong across the board.
Speaker Change: You know, if you make a distraction of where we do remediation and frankly at the larger end of commercial lines. [inaudible]
The sort of behavior you see in the marketplace? Please.
Speaker Change: We need to leave margin beyond what we think is reasonable to grow in that segment. So we have tools in the field to be very surgical to make sure that where we use margin, there's plenty of margin to use and that will move the needle on retention. Otherwise we're not bothering. All right.
You have anything to add, Guillaume? [inaudible]
Speaker Change: No, I'd say from a pure pricing perspective, we know where there's conservatism in our reserving position and we're taking that into account to have our best view in pricing. So I think that's kind of baked in our price point that are in the marketplace.
Speaker Change: and many others. I hope you enjoyed this video. If you did, please give it a thumbs up, subscribe, and share it with your friends. I will see you next time.
Speaker Change: Okay, thanks. And then if I could just offer another, you know, just a point of clarification, maybe quickly here. When you say there's five basis points of combined ratio, talking about five basis points of combined ratio from tariffs at the total company level, not just personal auto, just a point of clarification.
Speaker Change: Correct, correct, it's not, by the way, it's not 50 basis points, it's five basis points with the tariff as they are either announced or enforced today and that assumes we do nothing.
Thank you.
Perfect, thank you.
Thank you.
Speaker Change: Thank you. Ladies and gentlemen, this is all the time we have today. I would like to turn the call back over to Geoff Kwan.
Speaker Change: Thank you everyone for joining us today. Following the call, a telephone replay will be available for one week, and the webcast will be archived on our website for one year. A transcript will also be available on our website in the financial report section.
Speaker Change: Thank you, sir. Ladies and gentlemen, this does indeed conclude your conference call for today. Once again, thank you for attending. And at this time, we do ask that you please disconnect your lines.